Pfizer Would Benefit From Taking Over Glaxo, Deutsche Bank Says

Pfizer Inc. would benefit from a takeover of U.K. rival GlaxoSmithKline Plc, a Deutsche Bank AG analyst wrote in a note to clients titled “Introducing PfizerKline.”

A Glaxo acquisition would be “materially accretive” to earnings, Gregg Gilbert, a Deutsche Bank analyst based in New York, wrote in the note on Wednesday. Such a transaction would also allow Pfizer to “unlock access to its balance sheet and improve its tax situation,” he said. Pfizer hasn’t announced a takeover bid for London-based Glaxo.

Pfizer Chief Executive Officer Ian Read has signaled he’s hungry for transactions that can boost the biggest U.S. drugmaker’s sales. He’s looked across the Atlantic before: A year ago, New York-based Pfizer abandoned a bid to buy London- based AstraZeneca Plc for $117 billion in what would have been the industry’s biggest-ever acquisition. Andrew Widger, a spokesman for Pfizer, declined to comment on the Deutsche Bank report, as did Glaxo spokesman Simon Steel.

“We believe that the company has a sense of urgency to create value by leveraging the power of its balance sheet to do needle-moving deals,” Gilbert wrote. “Since media reports in the past have pointed to the potential for a Pfizer/GSK combination, we are revisiting that theme.”

Gilbert and colleagues conducted a preliminary analysis assuming a purchase price of 1,924 pence a share, funded with half stock and half cash. That scenario would boost Pfizer’s earnings per share by 10 percent to 16 percent starting next year, they wrote.

Under Pressure

Glaxo Chief Executive Officer Andrew Witty has come under pressure as the drugmaker’s share performance and revenue growth lagged behind competitors. A bribery scandal in China also led to a $489 million fine on Witty’s watch.

Glaxo’s stock has lost 11 percent of its value over the past year, lagging the 31 percent increase of the Bloomberg index that tracks European pharmaceutical stocks.

Witty on May 6 laid out his strategy to investors, abandoning plans to spin off the company’s HIV-drugs unit and reducing funds to be returned to shareholders, opting to retain capital to bolster the company’s growth.

Pfizer, meantime, is in the midst of another acquisition. It agreed in February to buy Hospira Inc., which makes injectable drugs, in a transaction valued at about $17 billion, beefing up its roster of generic medicine ahead of a potential spinoff.